New amendments to the Insolvency Practitioners Bill

Friday 25 January 2019

Authors: Tim Fitzgerald, David Friar and Simone Cooper

​​Nearly nine years after it was first introduced, the Insolvency Practitioners Bill 2010 has again been reported back from the Select Committee. The Committee adopted most of the changes proposed last year (see our update here), while also clarifying some provisions and changing others yet again.

Co-regulation has been recommended

Most fundamentally, the Select Committee has recommended that Parliament adopt the co-regulatory licencing regime proposed in the Supplementary Order Paper. Insolvency Practitioners will be licenced, and regulated by the Registrar of Companies and at least one accredited industry body.

The Registrar will be responsible for licensing and accreditation standards (among other things), and the accredited body will be the front-line regulator responsible for issuing licences and, in the first instance, investigating complaints. This model has broad industry support and its adoption by the Committee is welcome news.

No right for "aggrieved" parties to seek compensation directly

One of the key changes proposed last year was the introduction of a right for "aggrieved" parties to seek compensation from insolvency practitioners who had "failed to comply" with their legal obligations.

Several submitters, including Bell Gully, raised concerns over the uncertain scope and application of the proposed section. Bell Gully's concerns are set out in more detail in our submission to the Select Committee, which can be found here.

The Select Committee has responded to those concerns by removing the provisions which would have given aggrieved parties a direct claim against insolvency practitioners. Practitioners continue to be subject to their statutory and common law duties, and may be subject to prohibition orders as a result of a "failure to comply", but if these changes are adopted then there will not be a statutory right for aggrieved parties to seek compensation for every failure to comply.

The "duty to report serious problems" has been clarified, but remains broad

Last year's Supplementary Order Paper proposed a new "duty to report serious problems". This would require insolvency practitioners to report to regulators if they have "reasonable grounds to believe" there is a "serious problem".

"Serious problems" included situations where the company or its officers or shareholders have committed any offence, or where anybody that took part in the formation, administration, management, liquidation, or receivership of the company had misapplied company property, or "may be guilty" of negligence, default, breach of duty or trust in relation to the company. It also included any "material" breach of directors' duties, among other things.

The Select Committee has now clarified and narrowed the duty. Most importantly, the duty is only engaged when insolvency practitioners have reason to believe that a relevant person "is guilty" (rather than "may be guilty") of any negligence, default, breach of duty or trust. The proposed provision would also make clear that nothing in the section requires an insolvency practitioner to take any steps to investigate whether a serious problem has arisen.

Both of these changes are welcome, but do not entirely address our concern about this provision. It still creates a duty that has the potential to be onerous for practitioners, for two reasons:

  • The definition of "serious problem" is broad. Any negligence or default would suffice, regardless of whether it constitutes a criminal offence, and regardless of whether the negligence relates specifically to the relevant company; and

  • ​The duty can be breached even if the insolvency practitioner is unaware of that serious problem. If the insolvency practitioner was not aware of the serious problem – but should have been – then the section is engaged.

Accordingly, if the Bill is passed, insolvency practitioners will need to be vigilant to monitor whether they have reasonable grounds to believe a serious problem has occurred.

Reporting requirements to be addressed in new regulations

Last year's proposed amendments included a long and detailed list of things for liquidators to include in their initial, 6-monthly, and final reports. This included "details of each amount received and paid in respect of the liquidation". Insolvency practitioners expressed significant concerns about this during the consultation process. As one submitter noted, in a large liquidation this could amount to thousands of pages of transactions.

The Select Committee agreed with submitters that the proposed changes would be too onerous on practitioners, especially for solvent liquidations. It recommended that the proposed changes be removed from the Bill. However, it also recommended that the Companies Act be amended so that additional requirements could be prescribed by regulations. It said those regulations could (a) be amended as technology advances; and (b) allow for different rules to apply in respect of different classes of persons or circumstances.

Accordingly, although the provision that caused concern has been removed from the Bill, the issue of liquidators' reporting requirements in the new regime remains uncertain for now.

Other changes

The Select Committee has proposed a number of other changes, including:

  • Dishonesty convictions: The Select Committee has proposed removing dishonesty convictions from the list of factors that would disqualify somebody from acting as a liquidator without Court approval.  ​

  • Voluntary appointments of liquidators after a creditors’ application is filed: The Select Committee has re-formulated its proposed restriction on the appointment of liquidators after a creditor has made a liquidation application to the High Court. The proposal is now that if a creditors application is filed and served (rather than just filed), then shareholders or directors can only appoint liquidators without Court approval (a) in the first 10 days after the application is served) or (b) with the consent of the creditor that made the application.​

  • Declarations required before solvent liquidations​: Changes to strengthen the requirements for a solvent liquidation. This includes a requirement that the company's board of directors declare that the company is able to meet all of its obligations to creditors within 12 months, and making it an offence for directors to make that declaration without reasonable grounds. These are important changes, because the proposed regime will impose significantly fewer controls on solvent liquidations as compared to insolvent liquidations.

  • Overseas practitionersChanges to streamline the process that will apply to overseas insolvency practitioners acceding appointments in New Zealand, to strike a better balance between ensuring that they are subject to appropriate controls and not making the regime overly onerous for the accredited bodies in New Zealand.​

For further information about the proposed changes, please contact the authors or your usual Bell Gully advisor.


This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

For more information
  • Tim Fitzgerald

    Partner Auckland
  • David Friar

    Partner Auckland
  • Nick Moffatt

    Senior Associate Auckland
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